A123's Sale Moves Ahead

After a stormy 2012 that saw growing trade friction between China
and the US, I'm happy to see that 2013 is getting off to a better
start with Washington's approval of a potentially sensitive sale of
a bankruptcy US technology firm to a Chinese buyer. Many readers
will know that I'm talking about the case of A123 Systems (AONEQ),
a former high-flying US battery maker that fell on hard times as new
energy industries worldwide experienced a broader downturn in demand
for their products.

In this case, Chinese buyer Wanxiang Group had won an
auction for most of A123's assets in a US bankruptcy court, which
should have been the final step for closure of the deal. But then
some US politicians, prodded by one or more companies that lost in
the bidding process, started pressuring the Obama administration to
kill the deal, since it involved cutting-edge technologies used in
lithium ion batteries.

In this case, I'm glad to report that the Obama administration has
seen the light of reason, and the agency that reviews deals for
national security concerns has just approved the sale, according to
foreign media reports citing Wanxiang. (English
article) The deal still requires one more government approval
to close, but presumably it will receive such a green light after
getting this first important approval.

I've been saying all along that this deal should get approved, as
Wanxiang looked like it was in a good position to develop some of
A123's technologies that otherwise may have been wasted if a
suitable buyer couldn't be found. I'm also hopeful that this is a
sign that cooler heads will prevail in Washington now that the US
presidential election is in the past and politicians can get back to
the business of governing rather than looking for opportunities to
curry public favor by opposing China acquisitions on national
security grounds.

Readers will recall that 2012 was a particularly bruising year for
US-China trade relations, as US politicians took just about any
opportunity to oppose any Chinese purchases of US companies based on
national security concerns. Washington spent much of the year
crafting a package of punitive tariffs against China's embattled
solar panel sector, citing Beijing's unfair subsidies for the
industry that put other global rivals at a disadvantage.

That dispute wasn't really related to national security, but still
had plenty of anti-China overtones. The anti-China rhetoric reached
a crescendo in October, just a month before the election, when the
US government said that Chinese telecoms equipment makers Huawei
and ZTE (HKEx: 763; Shenzhen: 000063) should be blocked
from selling their products in the US due to national security
concerns. (previous
post) Washington said that equipment from both companies
presented a risk because Beijing could potentially use networks
built by both Huawei and ZTE for spying.

Despite the heated rhetoric, reason did prevail to the north in
Canada, where the government in December approved the sale of oil
exploration giant Nexen to China's CNOOC (HKEx:
883; NYSE: CEO) after months of foot dragging. (previous
post) But the government added that it might not approve
similar deals in the future, again highlighting the sensitivity of
such transactions.

Yet another sensitive deal is still pending, which has a Chinese
group in negotiations to buy ILFC, the biggest US aircraft
leasing company, from insurance giant AIG (NYSE: AIG). It's
not clear if the Chinese buyer in that case will ultimately reach a
deal to buy ILFC, which would then require US government approval.
But now that the US election is behind us, I'm hopeful that the US
will get back to the business of more governing and do less
politicking with these cross-border acquisitions. If that happens,
look for an uptick in cross-border M&A, with rhetoric from both
Washington and Beijing fading as both sides get back to the business
of promoting economic growth.

Bottom line: The US approval of the sale of a battery maker to a
Chinese buyer could mark the beginning of a toning down in US-China
trade friction in 2013.

Doug Young has lived and worked in China for 15 years, much of
that as a journalist for Reuters, writing about publicly listed
Chinese companies. He currently lives in Shanghai where he
teaches financial journalism at a leading local university. He
also writes daily on his blog, Young’s China Business
Blog, commenting on the latest developments at
Chinese companies listed in the US, China and Hong Kong. He is
also the author of an upcoming book about the media in China, The
Party Line: How The Media Dictates Public Opinion in Modern
China .